TABLE OF CONTENTS

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PART I—FINANCIAL INFORMATION


	ITEM 1.	Financial Statements ~~(unaudited)~~		2

		Unaudited Consolidated Balance Sheets as of ~~August 31,~~November 30, 2010 and May 31, ~~201~~20100		2

		Unaudited Consolidated Statements of Operations for the three and six months ended ~~August 31,~~November 30, 2010 and 2009		3

		Unaudited Consolidated ~~Statement~~Statements of Stockholders’ Equity ~~as of August 31,~~for the six months ended November 30, 2010 and ~~May 31, 201~~20090		4

		Unaudited Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~August 31,~~November 30, 2010 and 2009		5

		Notes to Unaudited Consolidated Financial Statements		6

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1920

	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		2632

	ITEM 4.	Controls and Procedures		2733

PART II—OTHER INFORMATION


	ITEM 1.	Legal Proceedings		2935

	ITEM 1.A.	Risk Factors		2935

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2935

	ITEM 3.	Defaults Upon Senior Securities		2935

	ITEM 5.	Other Information		2935

	ITEM 6.	Exhibits		2935

SIGNATURES				3036

EXHIBIT INDEX				3137

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ITEM 1.

~~ITEM 1.~~

Financial Statements (unaudited)

Mistras Group, Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

(in thousands, except share ~~and per share~~ data)

	November 30, 2010			May 31, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	6,769		$	16,037
Accounts receivable, net		63,354			54,721
Inventories, net		10,181			8,736
Deferred income taxes		2,287			2,189
Prepaid expenses and other current assets		5,791			5,292
Total current assets		88,382			86,975
Property, plant and equipment, net		46,396			39,981
Intangible assets, net		20,290			16,088
Goodwill		51,586			44,315
Other assets		454			1,273
Total assets	$	207,108		$	188,632

LIABILITIES, PREFERRED STOCK AND EQUITY
Current liabilities
Current portion of long-term debt	$	5,563		$	6,303
Current portion of capital lease obligations		5,854			5,370
Accounts payable		4,594			4,640
Accrued expenses and other current liabilities		22,585			20,090
Income taxes payable		3,504			3,281
Total current liabilities		42,100			39,684
Long-term debt, net of current portion		12,269			5,691
Obligations under capital leases, net of current portion		9,477			9,199
Deferred income taxes		2,325			2,087
Other long-term liabilities		636			1,417
Total liabilities		66,807			58,078

Commitments and contingencies
Preferred stock, 10,000,000 shares authorized		—			—
Equity
Common stock, $0.01 par value, 200,000,000 shares authorized, 26,664,855 and 26,663,528 shares issued and outstanding as of November 30, 2010 and May 31, 2010, respectively		267			267
Additional paid-in capital		163,830			162,054
Accumulated deficit		(23,178	)		(30,448	)
Accumulated other comprehensive loss		(1,021	)		(1,587	)
Total Mistras Group, Inc. stockholders’ equity		139,898			130,286
Noncontrolling interest		403			268
Total equity		140,301			130,554
Total liabilities, preferred stock and equity	$	207,108		$	188,632

August 31, 2010 May 31, 2010
ASSETS
Current Assets
Cash and cash equivalents $ 13,855 $ 16,037
Accounts receivable, net 51,877 54,721
Inventories, net 8,982 8,736
Deferred income taxes 2,272 2,189
Prepaid expenses and other current assets 5,334 5,292
Total current assets 82,320 86,975
Property, plant and equipment, net 40,469 39,981
Intangible assets, net 17,695 16,088
Goodwill 47,622 44,315
Other assets 204 1,273
Total assets $ 188,310 $ 188,632

LIABILITIES, PREFERRED STOCK AND EQUITY
Current liabilities
Current portion of long-term debt $ 6,579 $ 6,303
Current portion of capital lease obligations 5,219 5,370
Accounts payable 4,553 4,640
Accrued expenses and other current liabilities 19,263 20,090
Income taxes payable 2,332 3,281
Total current liabilities 37,946 39,684
Long-term debt, net of current portion 6,441 5,691
Obligations under capital leases, net of current portion 8,467 9,199
Deferred income taxes 2,032 2,087
Other long-term liabilities 662 1,417
Total liabilities 55,548 58,078

Commitments and contingencies
Preferred stock, 10,000,000 shares authorized — —
Equity
Common stock, $0.01 par value, 200,000,000 shares authorized, 26,664,254 and 26,663,528 shares issued and outstanding as of August 31, 2010 and May 31, 2010, respectively
267 267
Additional paid-in capital 162,783 162,054
Accumulated deficit (28,856 ) (30,448 )
Accumulated other comprehensive loss (1,797 ) (1,587 )
Total Mistras Group, Inc. stockholders’ equity 132,397 130,286
Noncontrolling interest 365 268
Total equity 132,762 130,554
Total liabilities, preferred stock and equity $ 188,310 $ 188,632

The accompanying notes are an integral part of these consolidated financial statements.

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Mistras Group, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

(in thousands, except per share data)

	Three months ended November 30,					Six months ended November 30,
	2010			2009		2010			2009
Revenues:
Services	$	82,953		$	66,862	$	144,205		$	118,518
Products		5,884			5,037		13,042			9,470
Total revenues		88,837			71,899		157,247			127,988
Cost of Revenues:
Cost of services		55,667			44,506		97,058			78,875
Cost of goods sold		2,067			1,742		5,344			3,841
Depreciation of services		3,136			2,435		5,945			4,715
Depreciation of products		159			200		314			391
Total cost of revenues		61,029			48,883		108,661			87,822
Gross profit		27,808			23,016		48,586			40,166
Selling, general and administrative expenses		15,615			13,686		31,094			26,819
Research and engineering		569			449		1,124			932
Depreciation and amortization		1,326			1,214		2,504			2,259
Legal reserve		101			—		351			(297	)
Income from operations		10,197			7,667		13,513			10,453
Other expenses
Interest expense		671			1,017		1,361			2,081
Loss on extinguishment of long-term debt		—			218		—			387
Income before provision for income taxes and noncontrolling interest		9,526			6,432		12,152			7,985
Provision for income taxes		3,818			2,875		4,872			3,569
Net income		5,708			3,557		7,280			4,416
Net (income) loss attributable to noncontrolling interests, net of taxes		(30	)		5		(10	)		(39	)
Net income attributable to Mistras Group, Inc.		5,678			3,562		7,270			4,377
Accretion of preferred stock		—			6,499		—			6,499
Net income attributable to common shareholders	$	5,678		$	10,061	$	7,270		$	10,876
Earnings per common share (See Note 4):
Basic	$	0.21		$	0.48	$	0.27		$	0.64
Diluted	$	0.21		$	0.14	$	0.27		$	0.19
Weighted average common shares outstanding:
Basic		26,665			20,987		26,664			16,971
Diluted		26,816			24,993		26,795			22,980

For the three months ended August 31,
2010 2009
Revenues:
Services $ 61,252 $ 51,656
Products 7,158 4,433
Total revenues 68,410 56,089
Cost of Revenues:
Cost of services 41,391 34,369
Cost of goods sold 3,277 2,099
Depreciation of services 2,809 2,280
Depreciation of products 155 191
Total cost of revenues 47,632 38,939
Gross profit 20,778 17,150
Selling, general and administrative expenses 15,479 13,133
Research and engineering 555 483
Depreciation and amortization 1,178 1,045
Legal reserve 250 (297 )
Income from operations 3,316 2,786
Other expenses
Interest expense 690 1,064
Loss on extinguishment of long-term debt — 169
Income before provision for income taxes and noncontrolling interest 2,626 1,553
Provision for income taxes 1,054 694
Net income 1,572 859
Net loss (income) attributable to noncontrolling interests, net of taxes 20 (44 )
Net income attributable to common stockholders $ 1,592 $ 815
Earnings per common share:
Basic $ 0.06 $ 0.06
Diluted $ 0.06 $ 0.04
Weighted average common shares outstanding:
Basic 26,664 13,000
Diluted 26,778 20,435

The accompanying notes are an integral part of these consolidated financial statements.

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Mistras Group, Inc. and Subsidiaries

Unaudited Consolidated ~~Statement of~~Statements Stockholders’ Equity

(in thousands)

													Total
							Retained			Accumulated			Mistras
					Additional		earnings			other			Group, Inc.
	Common Stock				paid-in		(accumulated			comprehensive			Stockholders’			Noncontrolling		Total
	Shares		Amount		capital		deficit)			loss			Equity			Interest		Equity

Six months ended November 30, 2009:
Balance at May 31, 2009		13,000	$	130	$	917	$	(47,376	)	$	(1,583	)	$	(47,912	)	$	245	$	(47,667	)
Net income		—		—		—		4,377			—			4,377			39		4,416
Other Comprehensive Income, net of tax:
Foreign currency translation adjustment		—		—		—		—			1,218			1,218			—		1,218
Comprehensive income														5,595			39		5,634
Accretion of preferred stock		—		—		—		6,499			—			6,499			—		6,499
Issuance of common stock upon conversion of class A & B preferred stock		6,759		68		20,789		—			—			20,857			—		20,857
Reversal of stock accretion upon conversion of preferred stock to common stock, net of accretion adjustment		—		—		63,627		—			—			63,627			—		63,627
Issuance of common stock from initial public offering, net		6,700		67		74,091		—			—			74,158			—		74,158
Stock compensation		—		—		1,033		—			—			1,033			—		1,033
Other		—		—		—		(7	)		—			(7	)		—		(7	)

Balance at November 30, 2009		26,459	$	265	$	160,457	$	(36,507	)	$	(365	)	$	123,850		$	284	$	124,134

Six months ended November 30, 2010:
Balance at May 31, 2010		26,664	$	267	$	162,054	$	(30,448	)	$	(1,587	)	$	130,286		$	268	$	130,554

Net income		—		—		—		7,270			—			7,270			10		7,280
Other Comprehensive Income, net of tax:
Foreign currency translation adjustment		—		—		—		—			566			566			8		574
Comprehensive income														7,836			18		7,854
Issuance of common stock		1		—		—		—			—			—			—		—
Stock compensation		—		—		1,776		—			—			1,776			—		1,776
Noncontrolling interest in subsidiaries		—		—		—		—			—			—			117		117

Balance at November 30, 2010		26,665	$	267	$	163,830	$	(23,178	)	$	(1,021	)	$	139,898		$	403	$	140,301

Common Stock Retained Accumulated
Additional earnings other
paid-in
(accumulated
comprehensive Noncontrolling
Comprehensive

Shares Amount capital deficit) loss Interest Total
income (loss)

Balance at May 31, 2010 26,664 $ 267 $ 162,054 $ (30,448 ) $ (1,587 ) $ 268 $ 130,554 $

Net income (loss) — — — 1,592 — (20 ) 1,572 1,572
Foreign currency translation adjustment — — — — (210 ) — (210 ) (210 )
Stock compensation — — 729 — — — 729 —
Noncontrolling interest in subsidiary — — — — — 117 117 —

Balance at August 31, 2010 26,664 $ 267 $ 162,783 $ (28,856 ) $ (1,797 ) $ 365 $ 132,762 $ 1,362

The accompanying notes are an integral part of these consolidated financial statements.

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Mistras Group, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Six months ended November 30,
	2010			2009
Cash flows from operating activities
Net income attributable to common shareholders	$	7,270		$	4,377
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		8,763			7,365
Deferred income taxes		(29	)		—
Provision for doubtful accounts		341			919
Loss on extinguishment of long-term debt		—			387
Gain on sale of assets		13			73
Amortization of deferred financing costs		84			122
Stock compensation expense		1,776			1,033
Interest rate swap		(210	)		(310	)
Noncontrolling interest		10			39
Foreign currency gain		(368	)		(360	)
Changes in operating assets and liabilities, net of effect of acquisitions
Accounts receivable		(8,207	)		(11,015	)
Inventories		(1,345	)		(146	)
Prepaid expenses and other current assets		(429	)		(481	)
Other assets		980			2,488
Accounts payable		(174	)		1,891
Income taxes payable		31			3,335
Accrued expenses and other current liabilities		2,589			(1,097	)
Net cash provided by operating activities		11,095			8,620
Cash flows from investing activities
Purchase of property, plant and equipment		(3,721	)		(591	)
Purchase of intangible assets		(231	)		(236	)
Acquisition of businesses, net of cash acquired		(16,856	)		(14,350	)
Proceeds from sale of equipment		42			128
Net cash used in investing activities		(20,766	)		(15,049	)
Cash flows from financing activities
Repayment of capital lease obligations		(2,984	)		(3,172	)
Repayments of long-term debt		(3,418	)		(64,702	)
Net borrowings (repayments) from revolver		6,600			(15,505	)
Proceeds from borrowings of long-term debt		—			25,000
Debt issuance costs		—			(449	)
Net proceeds from issuance of common stock		—			74,147
Net cash provided by financing activities		198			15,319
Effect of exchange rate changes on cash and cash equivalents		205			(5	)
Net change in cash and cash equivalents		(9,268	)		8,885
Cash and cash equivalents
Beginning of period		16,037			5,668
End of period	$	6,769		$	14,553
Supplemental disclosure of cash paid
Interest	$	1,496		$	2,214
Income taxes	$	4,617		$	176
Noncash investing and financing
Equipment acquired through capital lease obligations	$	2,731		$	4,089
Issuance of notes payable and other debt obligations primarily related to acquisitions	$	1,637		$	5,398

For the three months ended August 31,
2010 2009
Cash flows from operating activities
Net income attributable to common stockholders $ 1,592 $ 815
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 4,142 3,516
Deferred income taxes (24 ) —
Provision for doubtful accounts 105 897
Loss on extinguishment of long-term debt — 169
Gain on sale of assets (9 ) (29 )
Amortization of deferred financing costs 42 69
Stock compensation expense 729 250
Noncash interest rate swap 89 124
Net (loss) income attributable to noncontrolling interests (20 ) 44
Foreign currency (gain) loss (17 ) 210
Changes in operating assets and liabilities, net of effect of acquisitions
Accounts receivable 3,140 214
Inventories (189 ) 965
Prepaid expenses and other current assets (18 ) (436 )
Other assets 937 (575 )
Accounts payable 281 1,154
Income taxes payable (938 ) 452
Accrued expenses and other current liabilities (1,561 ) (2,356 )
Net cash provided by operating activities 8,281 5,483
Cash flows from investing activities
Purchase of property, plant and equipment (1,877 ) (1,375 )
Purchase of intangible assets (86 ) (85 )
Acquisition of businesses, net of cash acquired (5,301 ) (14,000 )
Proceeds from sale of equipment 24 102
Net cash used in investing activities (7,240 ) (15,358 )
Cash flows from financing activities
Repayment of capital lease obligations (1,459 ) (1,425 )
Repayments of long-term debt (1,642 ) (38,009 )
Net borrowings from revolver — 25,335
Proceeds from borrowings of long-term debt — 25,000
Debt issuance costs — (500 )
Net cash (used in) provided by financing activities (3,101 ) 10,401
Effect of exchange rate changes on cash and cash equivalents (122 ) (159 )
Net change in cash and cash equivalents (2,182 ) 367
Cash and cash equivalents
Beginning of period 16,037 5,668
End of period $ 13,855 $ 6,035
Supplemental disclosure of cash paid
Interest $ 750 $ 1,035
Income taxes $ 3,530 $ 185
Noncash investing and financing
Equipment acquired through capital lease obligations $ 583 $ 1,598
Issuance of notes payable and other debt obligations primarily related to acquisitions
$ 1,637 $ 4,412

The accompanying notes are an integral part of these consolidated financial statements.

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(tabular dollars in thousands, except per share data)

1. ~~Description of Business & Basis of Presentation~~

1.	Description of Business & Basis of Presentation

Description of Business

Mistras Group, Inc. and subsidiaries (the “Company”) is a leading “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity of critical energy, industrial and public infrastructure. The Company combines industry-leading products and technologies, expertise in mechanical integrity (MI) and non-destructive testing (NDT) services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk a nd avoid catastrophic disasters. Given the role the Company services play in ensuring the safe and efficient operation of infrastructure, the Company has historically provided a majority of its services to its customers on a regular, recurring basis. The Company serves a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, aerospace and defense, transportation, primary metals and metalworking, pharmaceuticals and food processing industry.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended ~~August 31,~~November 30, 2010 are not necessarily indicative of the results that may be expected for the year ending May 31, 2011. The balance sheet at May 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for ~~complete fin ancial~~co mplete financial statements. You should read these unaudited consolidated financial statements together with the historical consolidated financial statements of the Company as filed with the Securities and Exchange Commission.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Mistras Group, Inc. and its wholly or majority-owned subsidiaries: Quality Service Laboratories, Inc., Cismis Springfield Corp., Mistras Group, S.A. (formerly Euro Physical Acoustics, S.A.) and its majority-owned subsidiary, IPS S.A.R.L. (“IPS”), Nippon Physical Acoustics Ltd., Physical Acoustics South America, Diapac Company, Mistras Canada, Inc. and Physical Acoustics Ltd. and its wholly or majority-owned subsidiaries, Physical Acoustics India Private Ltd., Physical Acoustics B.V. and Envirocoustics A.B.E.E. (“Envac”). Where the Company’s ownership interest is less than 100%, the noncontrolling interests are reported in stockholders’ equity in the accompanying consolidated balance sheets. The noncontrolling interest in net i ncome, net of tax, is classified separately in the accompanying consolidated statements of operations.

All significant intercompany accounts and transactions have been eliminated in consolidation. All foreign subsidiaries’ reporting year ends are April 30, while Mistras Group, Inc. and the domestic subsidiaries year ends are May 31. The effect of this difference in timing of reporting foreign operations on the consolidated results of operations and consolidated financial position is not significant.

Reclassification

Certain amounts previously reported in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company’s financial condition or results of operations as previously reported.

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(tabular dollars in thousands, except per share data)

2.	Summary of Significant Accounting Policies

Revenue recognition

Revenue recognition policies for the various sources of revenues are as follows:

Services

The Company predominantly derives revenues by providing its services on a time and material basis and recognizes revenues when services are rendered. At the end of any reporting period, there may be earned but unbilled revenues that are accrued. Payments received in advance of revenue recognition are reflected as deferred revenues.

Software

Revenues from the sale of perpetual licenses are recognized upon the delivery and acceptance of the software. Revenues from term licenses are recognized ratably over the period of the license. Revenues from maintenance, unspecified upgrades and technical support are recognized ratably over the period such items are delivered. For multiple-element arrangement software contracts that include non-software elements, and where the software is essential to the functionality of the non-software elements (collectively referred to as software multiple-element arrangements), the Company applies the rules as noted below.

Products

Revenues from product sales are recognized when risk of loss and title passes to the customer, which is generally upon product delivery. The exceptions to this accounting treatment would be for multiple-element arrangements (described below) or those situations where specialized installation or customer acceptance is required. Payments received in advance of revenue recognition are reflected as deferred revenues.

Percentage of completion

A portion of the Company’s revenues are generated from engineering and manufacturing of custom products under long-term contracts that may last from several months to several years, depending on the contract. Revenues from long-term contracts are recognized on the percentage-of-completion method of accounting. Under the percentage-of-completion method of accounting revenues are recognized as work is performed. The percentage of completion at any point in time is based on total costs or total labor dollars incurred to date in relation to the total estimated costs or total labor dollars estimated at completion. The percentage of completion is then applied to the total contract revenue to determine the amount of revenue to be recognized in the period. Application of the percentage-of-completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. Contract costs include all direct materials, direct labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and all costs associated with operation of equipment. The cost estimation process is based upon the professional knowledge and experience of the Company’s engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in our project performance and the recoverability of any claims. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

Multiple-element arrangements

The Company occasionally enters into transactions that represent multiple-element arrangements, which may include any combination of services, software, and hardware. ~~Vendor-specific~~Under current FASB guidance, the Company utilizes vendor-specific objective evidence ~~is utilized~~ to determine whether ~~they~~the multiple elements can be separated into more than one unit of accounting. A multiple-element arrangement is separated into more than one unit of accounting if: (1) the delivered item has value on a standalone basis; and (2) there is objective and reliable evidence of the fair value of the undelivered items if the delivery or performance of the undelivered items is probable and in the control of the Company.

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(tabular dollars in thousands, except per share data)

If these criteria are not met, then revenues are deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered. If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative fair value. Effective June 1, 2011, the Company will adopt updated guidance from the FASB that will require the allocation of revenue in multiple-element arrangements to separate units of accounting based on an element’s estimated selling price if vendor-specific or other first party evidence is not available.

Use of Estimates

These unaudited consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The more significant estimates include valuation of goodwill and intangible assets, useful lives of long-lived assets, allowances for doubtful accounts, inventory valuation, reserves for self-insured workers compensation and health benefits and provision for income taxes.

Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, and (2) the dilutive effect of ~~the~~ assumed ~~exercise~~conversion of ~~stock options~~equity awards using the treasury stock method. With respect to the number of weighted-average shares outstanding (denominator), diluted shares reflects only the exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and the pro forma vesting of restricted stock units.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair market value of net assets of the acquired business at the date of acquisition. The Company tests for impairment annually, in its fiscal fourth quarter, using a two-step process. The first step identifies potential impairment by comparing the fair value of the Company’s reporting units to its carrying value. If the fair value is less than the carrying value, the second step measures the amount of impairment, if any. The impairment loss is the amount by which the carrying amount of goodwill exceeds the implied fair value of that goodwill. The most recent annual test for impairment performed for fiscal 2010 did not identify any instances of impairment and there were no events through ~~August 31,~~November 30, 2010 that warranted a reconsideration of our impairment test results.

Intangible assets are recorded at cost. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At times, cash deposits may exceed the limits insured by the Federal Deposit Insurance Corporation. The Company believes it is not exposed to any significant credit risk or the risk of nonperformance of the financial institutions.

The Company sells primarily to large companies, extends reasonably short collection terms, performs credit evaluations and does not require collateral. The Company maintains reserves for potential credit losses.

The Company has one major customer with multiple business units that accounted for ~~18%~~15% and ~~22%~~19% of revenues for the three months ended ~~August 31,~~November 30, 2010 and 2009, respectively, and 16% and 20% of total revenues for the six months ended November 30, 2010 and 2009, respectively. Accounts receivable from this customer was approximately ~~15% and~~ 10% of total accounts receivable, net as of ~~August 31,~~November 30, 2010 and May 31, 2010, respectively.

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(tabular dollars in thousands, except per share data)

Stock-based compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based upon the grant-date fair value of the award. The Company uses the “straight-line” attribution method for allocating compensation costs and recognizes the fair value of each ~~stock option~~equity award on a straight-line basis over the vesting period of the related awards.

~~-8-~~

~~Mistras Group, Inc. and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(tabular dollars in thousands, except per share data)~~

The Company uses the Black-Scholes option-pricing model to estimate the fair value of the stock option awards as of the grant date. The Black-Scholes model, by its design, is highly complex and dependent upon key data inputs estimated by management. The primary data inputs with the greatest degree of judgment are the expected term of stock-based awards and the estimated volatility of the Company’s common stock price. The Black-Scholes model is sensitive to changes in these two variables. Since the Company’s initial public offering (“IPO”), the expected term of the Company’s stock options is generally determined using the mid-point between the vesting period and the end of the contractual term. Expected stock price volatility is typically based on the daily historical trading data for a period equal to the expected term. Because the Company’s historical trading data only dates back to October 8, 2009, the first trading date after its IPO, the Company has estimated expected volatility using an analysis of the stock price volatility of comparable peer companies. Prior to the Company’s IPO, the exercise price equaled the estimated fair market value of the Company’s common stock, as determined by its board of directors. Since the Company’s IPO, the exercise price of stock option grants is determined using the closing market price of the Company’s common stock on the date of grant.

Recent Accounting Pronouncements

In October 2009, the FASB issued guidance on revenue recognition related to multiple-element arrangements. The new guidance requires companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other first party evidence of value is not available. This guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted retrospectively from the beginning of an entity’s fiscal year. The Company does not expect a significant impact on the financial statements of the Company when the guidance is adopted in fiscal 2012.

3. ~~Capitalization~~

3.	Capitalization

Common Stock

In October 2009, the Company completed its initial public offering of 10,000,000 shares of common stock at a price of $12.50 per share. The Company sold 6,700,000 shares. The Company received net proceeds of approximately $74.0 million from the offering. The Company used approximately $68.0 million of the net proceeds to repay the outstanding principal balance of the term loan ($25.0 million), outstanding balance of the revolver ($41.4 million) and accrued interest thereon ($0.1 million), as well as approximately $1.5 million to pay costs and expenses related to the offering. The remaining proceeds (approximately $6.0 million) were used for acquisitions and working capital purposes.

Dividends on common stock will be paid when, and if declared by the board of directors. Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held.

Preferred stock

Prior to its IPO in October 2009, the Company completed several private placements of its Class A and Class B preferred stock. These preferred shares included various redemption and conversion features and were reported outside the equity section and adjusted to fair value, which represented their redemption value at each reporting date. All of the preferred shares outstanding as of the offering converted to common stock and all accretion recorded through the redemption price formula were credited to additional paid-in capital.

Stock options

In September 2009, the Company’s ~~Board~~board of ~~Directors~~directors and shareholders adopted and approved the 2009 Long-Term Incentive Plan (the “2009 Plan”), which became effective upon the closing of the IPO. Awards may be in the form of stock options, restricted stock units and other forms of stock-based incentives, including stock appreciation rights and deferred stock rights. The term of each incentive and non-qualified stock option is ten years. Vesting generally occurs over a period of four years, the expense for which is recorded on a straight-line basis over the requisite service period. The 2009 Plan allows for the grant of awards of up to approximately 2,286,000 ~~shares, of which approximately 1,997,000 shares were available as of August 31, 2010 for future grants under the 2009 Plan.~~

~~-9-~~

~~Mistras Group, Inc. and Subsidiaries~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(tabular dollars in thousands, except per share data)~~

shares. Prior to the Company’s IPO in October 2009, the Company had two stock option plans: (i) the 1995 Incentive Stock Option and Restricted Stock Purchase Plan (the “1995 Plan”), and (ii) the 2007 Stock Option Plan (the “2007 Plan”). No additional awards may be granted from these two plans.

~~Under the 2009 Plan, the 2007 Plan~~

-9-

Mistras Group, Inc. and ~~the 1995 Plan, collectively,~~Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(tabular dollars in thousands, except per share data)

As of November 30, 2010, there were a total of approximately ~~2,911,000~~2,895,000 stock options and ~~219,000~~approximately 218,000 unvested restricted stock units outstanding ~~as of August 31, 2010.~~under the 2009 Plan, the 1995 Plan, and the 2007 Plan. Under the 2009 Plan there were 1,997,000 shares available for future grants.

The fair value of the Company’s stock option awards was estimated at the date of grant using the Black-Scholes option-pricing model with the following range of assumptions:

	For the three months ended August 31,						For the six months ended November 30,
	2010			2009			2010		2009

Dividend yield		0.0	%		0.0	%	0.0	%	0.0	%
Expected volatility		44	%		44	%	44	%	44	%
Risk-free interest rate		2.6	%		1.9-3.0	%	2.6	%	1.9-3.0	%
Expected term (years)		6.3			4.0-6.3		6.3		4.0-6.3

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, our competitive position and the effects of competition, the projected growth of the industries in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, and statements of m anagement’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in the future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and management’s good faith belief with respect to future events, and is subject to risks and uncertainties that coul d cause actual performance or results to differ materially from those expressed in the statements. Important factors that could cause such differences include, but are not limited to the factors discussed under the “Risk Factors” section.

The following is a discussion and analysis of our financial condition and results of operations and should be read together with our condensed consolidated financial statements and related notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes to the audited consolidated financial statements included in our Annual Report on Form 10-K. In this quarterly report, our fiscal years, which end on May 31, are identified according to the calendar year in which they end (e.g., the fiscal year ended May 31, 2010 is referred to as “fiscal 2010”), and unless otherwise specified or the context otherwise requires, “Mistras,” “the Company,” “we,” “us” and “our ” refer to Mistras Group, Inc. and its consolidated subsidiaries.

Overview

We are a leading “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity of critical energy, industrial and public infrastructure. We combine industry-leading products and technologies, expertise in mechanical integrity (MI) and non-destructive testing (NDT) services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance our customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters. Given the role our services play i n ensuring the safe and efficient operation of infrastructure, we have historically provided a majority of our services to our customers on a regular, recurring basis. We serve a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, aerospace and defense, transportation, primary metals and metalworking, pharmaceuticals and food processing industries. During fiscal 2010, we provided our asset protection solutions to approximately 4,800 customers. As of ~~August 31,~~November 30, 2010, we had approximately ~~2,400~~2,500 employees, including 32 Ph.D.’s and more than 100 other degreed engineers and highly-skilled, certified technicians, in 7475 offices across 15 countries. We have established long-term relationships as a critical solutions provider to many leading companies in our target markets. Our current principal market is the oil and gas industry, which accounted for ~~approximately~~approxim ately 60% and 61% ~~and 63%~~ of our revenues ~~fo r~~for the ~~first~~second quarter of fiscal 2011 and 2010, respectively.

For the last several years, we have focused on introducing our advanced asset protection solutions to our customers using proprietary, technology-enabled software and testing instruments, including those developed by our Products and Systems segment. During this period, the demand for outsourced asset protection solutions has, in general, increased, creating demand from which our entire industry has benefited. We have experienced compounded annual growth rate (CAGR) for revenue of 31% over the last three fiscal years, including the impact of acquisitions and currency fluctuations. During the same period, revenues from our customers in the oil and gas market, historically our largest target market, had a CAGR of 40%. All of our other target markets, collectively, had a CAGR of 19%. We believe further growth can be realized in all of our target markets. Concurrent with this growth, we have worked to build our infrastructure to profitably absorb additional growth and have made a number of small acquisitions in an effort to leverage our ~~fixed~~fi xed costs, grow our base of experienced personnel, expand our technical capabilities and increase our geographical reach.

~~-19-~~-20-

We have increased our capabilities and the size of our customer base through the development of applied technologies and managed support services, organic growth and the ~~successful and seamless~~ integration of acquired companies. These acquisitions have provided us with additional products, technologies, resources and customers that have enhanced our sustainable competitive advantages over our competition.

The global economy continues to be fragile. Global financial markets continue to experience uncertainty, including ~~severely~~ diminished liquidity and credit availability, relatively low consumer confidence, ~~slow~~slower economic growth, persistently high unemployment rates, volatile currency exchange rates and continued uncertainty about economic stability. There may be further deterioration and volatility in the global economy, the global financial markets, and consumer confidence. However, ~~we believe it also has~~these conditions have allowed us to capitalize on ~~this~~an opportunity to selectively hire new talented individuals that otherwise might not have been available to us, to acquire and develop new technology in order to aggressively expand our proprietary portfolio of customized solutions, and to make acquisitions of complementary businesses at reasonable valuations. We be lieve we will be able to derive additional revenues from these strategic investments with favorable gross margins in future periods, which we believe would at least in part offset any further negative revenue impact we incur from the economic downturn during those periods.

Consolidated Results of Operations

~~First quarter of fiscal 2011~~Three months ended November 30, 2010 compared to ~~first quarter of fiscal 2010~~the three months ended November 30, 2009

Our consolidated results of operations for the ~~first quarter of fiscal 2011~~three months ended November 30, 2010 and ~~fiscal 2010~~2009 were as follows:

	For the three months ended August 31,					Three months ended November 30,
	2010		2009			2010			2009
	(in thousands )					(in thousands)
Statement of Operations Data
Revenues	$	68,410	$	56,089		$	88,837		$	71,899
Cost of revenues		44,668		36,468			57,734			46,248
Depreciation		2,964		2,471			3,295			2,635
Gross profit		20,778		17,150			27,808			23,016
Selling, general and administrative expenses		15,479		13,133			15,615			13,686
Research and engineering		555		483			569			449
Depreciation and amortization		1,178		1,045			1,326			1,214
Legal reserve		250		(297	)		101			—
Income from operations		3,316		2,786			10,197			7,667
Interest expense		690		1,064			671			1,017
Loss on extinguishment of long-term debt		—		169			—			218
Income before provision for income taxes and noncontrolling interest		2,626		1,553			9,526			6,432
Provision for income taxes		1,054		694			3,818			2,875
Net income		1,572		859			5,708			3,557
Net loss (income) attributable to noncontrolling interests, net of taxes		20		(44	)
Net income attributable to common stockholders	$	1,592	$	815
Net (income) loss attributable to noncontrolling interests, net of taxes							(30	)		5
Net income attributable to Mistras Group, Inc.							5,678			3,562
Accretion of preferred stock							—			6,499
Net income attributable to common shareholders						$	5,678		$	10,061

	Three months ended November 30,
	2010			2009
	(in thousands)
Gross profit	$	27,808		$	23,016

Gross profit % comprised of:
Revenues		100.0	%		100.0	%
Cost of revenues		65.0	%		64.3	%
Depreciation		3.7	%		3.7	%
Total		31.3	%		32.0	%
Gross profit % decrease from prior year quarter		(0.7	%)		(4.3	%)

Our gross profit by segment for the second quarter of fiscal 2011and 2010, was as follows:

	Three months ended November 30,
	2010			2009
	(in thousands)
Gross profit
Services	$	21,753		$	17,405
Products and Systems		2,821			2,818
International		3,260			2,944
Corporate and eliminations		(26	)		(151	)
	$	27,808		$	23,016

As a percentage of revenues, our gross profit was approximately 31% and 32% for the second quarter of fiscal 2011 and fiscal 2010, respectively. Cost of revenues, excluding depreciation, as a percentage of revenues was approximately 65% and 64% in the second quarter of fiscal 2011 and fiscal 2010, respectively. Depreciation expense included in the determination of gross profit for the second quarter of fiscal 2011 and fiscal 2010 was $3.3 million and $2.6 million, respectively.

The decrease in our gross profit as a percentage of revenues for the second quarter of fiscal 2011 was primarily attributable to a lower margin product mix of sales for both our Products and Systems segment and our International segment during the second quarter of fiscal 2011. Services segment gross profit as a percentage of revenue was consistent with prior year. While competitive pricing contracts remain a focus of many of our customers, we have offset the margin pressure by focusing on manpower utilization and other controllable cost of revenues.

Income from operations. Our income from operations by segment for the second quarter of fiscal 2011 and 2010, was as follows:

	Three months ended November 30,
	2010			2009
	(in thousands)
Income from operations
Services	$	10,249		$	7,625
Products and Systems		976			1,111
International		1,082			808
Corporate and eliminations		(2,110	)		(1,877	)
	$	10,197		$	7,667

-24-

Our income from operations of $10.2 million for the second quarter of fiscal 2011 increased $2.5 million, or 33%, compared to the first quarter of fiscal 2010. As a percentage of revenues, our income from operations was approximately 12% and 11% in the second quarter of fiscal 2011 and fiscal 2010.

As a percentage of revenues, selling, general and administrative expenses for the second quarter of fiscal 2011 and fiscal 2010 were 18% and 19%, respectively. Our selling, general and administrative expenses for the second quarter of fiscal 2011 increased approximately $1.9 million, or 14%, over the second quarter of fiscal 2010, primarily due to the cost of additional infrastructure to support our growth, including new locations obtained through our acquisitions. Our recent acquisitions accounted for approximately $0.5 million of this increase. Stock compensation costs increased approximately $0.3 million in the second quarter of fiscal 2011 over the second quarter of fiscal 2010. Other increases in our selling, general and administrative expenses included higher compensation and benefit expenses over the previous year attributed to normal salary increases, as well as our investment in additional management and corporate staff. A significant portion of these increases (as well as other increases in cost of revenues) supported our development of new and existing centers of excellence. Income from operations was also impacted by an increase in our legal provision of $0.1 million in the quarter. Depreciation and amortization included in the determination of income from operations for the second quarter of fiscal 2011 and fiscal 2010 was $1.3 million, or 1% of revenues, and $1.2 million, or 2%, respectively.

Interest expense. Interest expense was $0.7 million and $1.0 million for the second quarter of fiscal 2011 and fiscal 2010, respectively. The decrease in the second quarter of fiscal 2011 related to a decrease in average borrowings outstanding during the quarter of compared to fiscal 2010. Just prior to our IPO in October 2009, we had outstanding borrowings of approximately $66.4 million, which was subsequently repaid with the proceeds of the offering.

Net (income) loss attributable to noncontrolling interests, net of taxes. The increase in net income attributable to noncontrolling interests relates primarily to an increase in net income from PASA, our Brazilian subsidiary and IPS, our recently acquired subsidiary in France, during the second quarter. This increase was offset by the net loss incurred by Diapac, our subsidiary in Russia.

Income taxes. Our effective income tax rate was approximately 40% for the second quarter of fiscal 2011 compared to approximately 45% for the second quarter of fiscal 2010. The decrease was primarily due to the impact of permanent tax differences and an adjustment to our liabilities related to uncertain tax provisions.

Net income attributable to Mistras Group, Inc. Net income attributable to Mistras Group, Inc. for the second quarter of fiscal 2011 was $5.7 million, or 6% of our revenues, an increase of $2.1 million over the second quarter of fiscal 2010, which was $3.6 million, or 6% of revenues. This increase in net income was primarily the result of our revenue growth and lower interest expense, offset by higher selling, general and administrative expense and research and engineering expenses.

Net income attributable to common shareholders. Net income attributable to common shareholders for the second quarter of fiscal 2011 was $5.7 million, or 6% of our revenues, a decrease of $4.4 million when compared to the second quarter of fiscal 2010, which was $10.1 million, or 14% of revenues. This decrease was primarily due to a fair market value adjustment to preferred stock interests in the prior year, which accreted to the benefit of common shareholders. All of the preferred shares outstanding as of our IPO in October 2009 converted to common stock and all accretion recorded through the redemption price formula were credited to additional paid-in capital.

-25-

Six months ended November 30, 2010 compared to the six months ended November 30, 2009

Our consolidated results of operations for the six months ended November 30, 2010 and 2009 were as follows:

	Six months ended November 30,
	2010			2009
	(in thousands)
Statement of Operations Data
Revenues	$	157,247		$	127,988
Cost of revenues		102,402			82,716
Depreciation		6,259			5,106
Gross profit		48,586			40,166
Selling, general and administrative expenses		31,094			26,819
Research and engineering		1,124			932
Depreciation and amortization		2,504			2,259
Legal reserve		351			(297	)
Income from operations		13,513			10,453
Interest expense		1,361			2,081
Loss on extinguishment of long-term debt		—			387
Income before provision for income taxes and noncontrolling interest		12,152			7,985
Provision for income taxes		4,872			3,569
Net income		7,280			4,416
Net (income) loss attributable to noncontrolling interests, net of taxes		(10	)		(39	)
Net income attributable to Mistras Group, Inc.		7,270			4,377
Accretion of preferred stock		—			6,499
Net income attributable to common shareholders	$	7,270		$	10,876

Our EBITDA and Adjusted EBITDA, non-GAAP measures explained above, for the six months ended November 30, 2010 and 2009, respectively, was as follows:

	Six months ended November 30,
	2010		2009
EBITDA and Adjusted EBITDA data	(in thousands)
Net income attributable to Mistras Group, Inc.	$	7,270	$	4,377
Interest expense		1,361		2,081
Provision for income taxes		4,872		3,569
Depreciation and amortization		8,763		7,365
EBITDA	$	22,266	$	17,392
Legal reserve		351		(297	)
Large customer bankruptcy		—		767
Stock compensation expense		1,776		1,033
Loss on extinguishment of debt		—		387
Adjusted EBITDA	$	24,393	$	19,282

See explanation and definition of EBITDA and Adjusted EBITDA above on page 22.

-26-

Revenues. Revenues were $157.2 million for the six months ended November 30, 2010 compared to $128.0 million for the six months ended November 30, 2009. Revenues by segment for the six months ended November 30, 2010 and 2009 are as follows:

	Six months ended November 30,
	2010			2009
	(in thousands)
Revenues
Services	$	131,390		$	106,640
Products and Systems		10,538			8,369
International		18,390			15,230
Corporate and eliminations		(3,071	)		(2,251	)
	$	157,247		$	127,988

Our growth rates for the six months ended November 30, 2010 and 2009 were as follows:

	Six months ended November 30,
	2010			2009

Revenue growth	$	29,259		$	21,716
% Growth over prior year		22.9	%		20.4	%

Comprised of:
% of organic growth		16.2	%		9.7	%
% of acquisition growth		6.8	%		12.6	%
% foreign exchange decrease		(0.1	%)		(1.9	%)
		22.9	%		20.4	%

Revenues increased $29.3 million, or approximately 23%, for the six months ended November 30, 2010 compared to the six months ended November 30, 2009 as a result of growth in all our segments. For the six months ended November 30, 2010 and 2009, our organic growth rate, as compared to growth driven by acquisitions, was approximately 16% and 10%, respectively. This organic growth was the result of continued demand for our asset protection solutions, including growth from new and existing customers. InFor the ~~first quarter of fiscal 2011, we estimate that~~six months ended November 30, 2010, our growth from acquisitions was approximately ~~$4.4~~$8.8 million, or approximately 8%7%, compared to approximately ~~$5.7~~$13.5 million, or approximately ~~12%~~13%, in the ~~first quarter of fiscal 2010.~~six month ended November 30, 2009. We completed ~~two~~three acquisitions in ~~the first quarter of fiscal 2011~~six months ended November 2010 and ~~two~~three acquisitions in ~~the first quarter of fiscal 2010,~~six months ended Nove mber 30, 2009, further increasing our capabilities and adding to our base of qualified technicians.

~~Despite~~For the ~~prolonged downturn in the global economy, we~~six months ended November 30, 2010, our growth continued ~~to experience growth~~ in many of our target ~~markets in the first quarter of fiscal 2011 as compared to the first quarter of fiscal 2010.~~markets. The largest dollar increase during this period was attributable to customers in the oil and gas market which was ~~achieved globally on~~recognized from several new and existing projects, including an increase in our portfolio of “run and maintain” outsourced contracts and new work, some of which were obtained through our acquisitions. ~~Overall the oil~~This revenue was achieved globally and ~~gas market~~ provided approximately ~~61%~~60% and ~~63%~~62% of our total revenues for the ~~first quarter of fiscal 2011~~six months ended November 30, 2010 and ~~2010,~~2009, respectively. We also experienced high growth in several of our other target markets, including chemical, fossil power, and ~~nuclear power. These increases were partially offset by declines in aerospace an d infrastructure~~industrial markets. Our largest customer accounted for approximately ~~18%~~16% and ~~22%~~20% of our total revenues infor the ~~first quarter of fiscal 2011~~six months ended November 30, 2010 and ~~2010,~~20 09, respectively. No other customer accounted for more than 8% of our total revenues infor the ~~first quarter of fiscal 2011.~~six months ended November 30, 2010.

-27-

Gross profit. Our gross profit was ~~$20.8~~$48.6 million and increased ~~$3.6~~$8.4 million, or 21% in, during the ~~first quarter of fiscal 2011~~six months ended November 30, 2010 compared to ~~$17.2~~$40.1 million induring the ~~first quarter of fiscal 2010.~~six months ended November 30, 2009. As a percentage of revenues, our gross profit and its components ~~are~~were as follows:

	For the three months ended August 31,						Six months ended November 30,
	2010			2009			2010			2009
	(in thousand)						(in thousands)
Gross profit	$	20,778		$	17,150		$	48,586		$	40,166

Gross profit % comprised of:
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		65.3	%		65.0	%		65.1	%		64.6	%
Depreciation		4.3	%		4.4	%		4.0	%		4.0	%
Total		30.4	%		30.6	%		30.9	%		31.4	%
Gross profit % decrease from prior year quarter		(0.2	%)		(4.7	%)		(0.5	%)		(4.5	%)

-30-

Effect of Exchange Rate on Changes on Cash and Cash Equivalents

~~In each of the three months ended August 31, 2010 and 2009, the~~The effect of exchange rate changes on our cash and cash equivalents was ~~$0.1 million and~~approximately $0.2 million for the six months ended November 30, 2010 and was de minimis for the six months ended November 30, 2009, respectively.

Cash balance and credit facility borrowings

As of ~~August 31,~~November 30, 2010, we had cash and cash equivalents totaling ~~$13.9~~$6.8 million and ~~$55.0~~approximately $48.4 million available to us under our revolving credit facility. Our outstanding borrowings under our revolving credit facility were $6.6 million as of November 30, 2010. We finance our operations primarily through our net income, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our capital expenditures, debt maturities and other business needs.

OnIn July ~~22,~~ 2009, we entered into our current credit agreement with Bank of America, N.A., JPMorgan Chase Bank, N.A., TD Bank, N.A. and Capital One, N.A., which provided for a $25.0 million term loan and a $55.0 million secured revolving credit facility. The proceeds from this transaction were used to repay the outstanding indebtedness from our former credit facility and to fund acquisitions.

In October 2009, we repaid the outstanding principal balance of the term loan and the outstanding balance of the revolving credit facility using the proceeds from our initial public offering. Credit extended under the term loan may not be re-borrowed under the current credit agreement. Credit extended under the revolving credit facility may be re-borrowed at any time. Borrowings made under the revolving credit facility are payable onin July ~~21,~~ 2012. In December 2009, we signed an amendment to our current credit agreement that, among other things, adjusted certain affirmative and negative covenants including delivery of financial statements, the minimum consolidated debt service coverage ratio, the procedures for obtaining lender approval in acquisitions and the removal of the minimum EBITDA requirement.

Under the amended agreement, borrowings under the credit agreement bear interest at the LIBOR or base rate, at our option, plus an applicable LIBOR margin ranging from 1.75% to 3.25%, or base rate margin ranging from -0.50% to 0.50%, and a market disruption increase of between 0.0% and 1.0%, if the lenders determine it to be applicable. As of November 30, 2010, the interest rate for the borrowings under our revolving credit facility was 2.75%.

The credit agreement also contains financial and other covenants limiting our ability to, among other things, create liens, make investments and certain capital expenditures, incur more indebtedness, merge or consolidate, acquire other companies, make dispositions of property, pay dividends and make distributions to stockholders, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements. The agreement’s financial covenants require us to maintain a minimum debt service coverage ratio, and a funded debt leverage ratio, all as defined in the credit agreement. There is a provision in the credit facility that requires us to repay 25% of the immediately preceding fiscal year’s “free cash flow” if our ratio of “funded debt” to EBITDA, as defined in the c redit agreement, is greater than a specified amount on or before October 1 each year.

At ~~August 31,~~November 30, 2010, we were in compliance with the terms of the credit agreement.

~~-25-~~

Liquidity and capital resources outlook

Future sources of cash

We expect our future sources of cash to include cash flow from operations, cash borrowed under our revolving credit facility and cash borrowed from leasing companies to purchase equipment and fleet service vehicles. Our revolving credit facility is available for cash advances required for working capital and for letters of credit to support our operations. To meet our short-and long-term liquidity requirements, we expect primarily to rely on cash generated from our operating activities. We are currently funding our acquisitions through our available cash, borrowings under our revolving credit facility when necessary, and seller notes. We may also obtain capital through the issuance of debt or equity securities, or a combination of both.

Future uses of cash

We expect our future uses of cash will primarily be for acquisitions, international expansion, purchases or manufacture of field testing equipment to support growth, additional investments in technology and software products and the replacement of existing assets and equipment used in our operations. We often make purchases to support new sources of revenues, particularly in our Services segment, but generally only do so with a high degree of certainty about related customer orders and pricing. In addition, we have a certain amount of replacement equipment, including our fleet vehicles. We historically spend approximately 4% to 5% of our total revenues on capital expenditures, excluding acquisitions, and expect to fund these expenditures through a combination of cash and lease financing. In October 2010, we entered into an agreement fo r the construction of a new facility that will consolidate our facilities in the Houston, Texas metro area. This facility will serve as our Gulf Region headquarters and is expected to be completed by the end of the first quarter of fiscal 2012. The total construction costs per the agreement are approximately $3.3 million.

-31-

Our anticipated acquisitions may also require capital. For example, we have completed ~~three~~four acquisitions in fiscal 2011, including an acquisition completed in December 2010, with an initial cash outlay of approximately ~~$16.8 million, of which approximately $5.0 million was funded by our credit facility. This includes one acquisition completed in October 2010.~~$18.3 million. In some cases, additional equipment will be needed to upgrade the capabilities of these acquired companies. In addition, our future acquisition and capital spending may increase as we aggressively pursue growth opportunities. Other investments in infrastructure, training and software may also be required to match our growth, but we plan to continue using a disciplined approach to building our business. In addition, we will use cash to fund our operating leases, capital leases and long-term debt repayment and various other ~~obliga tions, including the commitments discussed in the table below,~~obligations as they arise.

We will also use cash to support our working capital requirements for our operations, particularly in the event of further growth and due to the impacts of seasonality on our business. Our future working capital requirements will depend on many factors, including the rate of our revenue growth, our introduction of new solutions and enhancements to existing solutions and our expansion of sales and marketing and product development activities. To the extent that our cash and cash equivalents and future cash flows from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, tech nologies or products that will complement our existing operations. In the event additional funding is required, we may not be able to obtain bank credit arrangements or effect an equity or debt financing on terms acceptable to us or at all.

Off-balance sheet arrangements

During the ~~first quarter of fiscal 2011,~~six months ended November 30, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

We have foreign currency exposure related to our operations in foreign locations where the functional currency is not the U.S. dollar. This foreign currency exposure, particularly the Euro, British Pound Sterling (GBP), Brazilian Real, Russian Ruble, Japanese Yen and the Indian Rupee, arises primarily from the translation of our foreign subsidiaries’ financial statements into U.S. dollars. For example, a portion of our annual sales and operating costs are denominated in GBP and we have exposure related to sales and operating costs increasing or decreasing based on changes in currency exchange rates. If the U.S. dollar increases in value against these foreign currencies, the value in U.S. dollars of the assets and liabilities originally recorded in these foreign currencies will decrease. Conversely, if the U.S. dollar decreases in value against these foreign currencies, the value in U.S. dollars of the assets and liabilities originally recorded in these foreign currencies will increase. Thus, increases and decreases in the value of the U.S. dollar relative to these foreign currencies have a direct impact on the value in U.S. dollars of our foreign currency denominated assets and liabilities, even if the value of these items has not changed in their original currency. For our foreign subsidiaries, assets and liabilities are translated at period ending rates of exchange. Translation adjustments for the assets and liability accounts are included in accumulated other comprehensive income in stockholders’ equity (deficit). We had approximately ~~$0.2~~$0.6 million of foreign currency translation ~~losses~~gains in other comprehensive income for the first ~~three~~six months of fiscal 2011. We do not currently enter into forward exchange contracts to hedge exposures ~~denominated in~~to foreign currencies. We may consider entering into hedging or forward exchange contracts in ~~the~~t he future.

~~-26-~~-32-

Interest Rate Sensitivity

The interest rate on our revolving credit facility, currently 2.75%, is ~~variable. Accordingly, to the extent that we borrow~~variable and adjusts periodically. We had $6.6 million of outstanding borrowings under ~~this~~our revolving credit facility ~~we are exposed to the risks associated with increases~~at of November 30, 2010. A hypothetical 100 basis point adverse shift in interest rates ~~under~~would not have had a material effect on our results of operations for the ~~facility.~~three or six month periods ended November 30, 2010.

From time to time, we enter into ~~two~~ interest rate swap contracts whereby we would receive or pay an amount equal to the difference between a fixed rate and LIBOR on a quarterly basis in order to reduce our exposure to interest rate fluctuations. All gains and losses are recognized as an adjustment to interest expense and the combined fair values are recorded in other liabilities on the consolidated balance sheet. At ~~August 31,~~November 30, 2010, we had ~~one interest rate swap contract outstanding with a notional amount of $8.0 million.~~no such contracts in effect.

We had cash and cash equivalents of ~~$13.9~~$6.8 million at ~~August 31,~~November 30, 2010. These amounts are held for working capital purposes and were invested primarily in short-term interest-bearing accounts. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income.

Fair Value of Financial Instruments

We do not have material exposure to market risk with respect to investments, as our investments consist primarily of highly liquid investments purchased with a remaining maturity of three months or less. We do not use derivative financial instruments for speculative or trading purposes; however, this does not preclude our adoption of specific hedging strategies in the future.

ITEM 4.

Controls and Procedures

Limitations on Effectiveness of Control.

Our management, including the principal executive and financial officers, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of our control system reflects the fact that there are resource constraints and the benefits of such controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of management’s assessments of the current effectiveness of our disclosure controls and procedures and its internal control over financial reporting are subject to risks. However, our disclosure controls and procedures are designed to provide reasonable assurance that the objectives of our control system are met.

~~-27-~~

Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). This evaluation included consideration of the various processes carried out under the direction of our disclosure committee in an effort to ensure that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified by the SEC. This evaluation also considered the work completed relating to our compliance efforts with regards to the requirements of S ection 404 of the Sarbanes-Oxley Act of 2002.

-33-

Based on this evaluation, our CEO and CFO concluded that, as of ~~August 31,~~November 30, 2010, our disclosure controls and procedures were operating effectively to ensure that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the requisite time periods and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

We intend to regularly review and evaluate the design and effectiveness of our disclosure controls and procedures and internal controls over financial reporting on an ongoing basis and to improve these controls and procedures over time.

Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting during the ~~first~~second quarter of fiscal 2011.

~~-28-~~-34-

PART II—OTHER INFORMATION

ITEM 1.

Legal Proceedings

See Note 1112 to the financial statements included in this report for a description of our legal ~~proceedings involving us.~~proceedings.

ITEM 1.A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed under the “Risk Factors” section included in our Annual Report on Form 10-K, filed with the SEC on August 17, 2010. There have been no material changes to the risk factors previously disclosed in the Annual Report.

ITEM 2.

Unregistered Sale of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

None

None.

ITEM 3.

Defaults Upon Senior Securities

None.

ITEM 5.

Other Information

None.

ITEM 6.

~~ITEM 5.~~Exhibits

~~Other Information~~

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended ~~August 31,~~November 30, 2010

	Or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period to

Delaware		22-3341267
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		~~(I.R.S. Employer~~ Identification No.)

195 Clarksville Road
Princeton Junction, New Jersey		08550
(Address of principal executive offices)		(Zip Code)

		Large accelerated filer o	Accelerated filer o
		Non-accelerated filer x	Smaller reporting company o
~~(Do~~	(Do not check if a smaller reporting company)

				Six months ended November 30,
				2010			2009

Number of entities		2			3			3
Total cost:

Cash paid	$	5,301		$	16,801		$	14,350
Subordinated notes issued		1,637			1,637			5,399
Debt assumed		98			1,100			—
Contingent consideration					—			687

	$	7,036
Purchase price				$	19,538		$	20,436

Current assets acquired		59			59			939
Property, plant and equipment		1,067			6,196			5,124
Deferred tax asset		6			6			1,067
Intangibles, primarily customer lists		2,655			6,265			8,239
Goodwill		3,366			7,129			5,067
Less: noncontrolling interest		(117	)		(117	)		—

	$	7,036
Net assets acquired				$	19,538		$	20,436

	Useful Life		August 31, 2010		May 31, 2010		Useful Life
	(Years)						(Years)	November 30, 2010			May 31, 2010
Land			$	2,186	$	1,304		$	2,195		$	1,304
Building and improvements		30-40		10,677		10,240	30-40		11,393			10,240
Office furniture and equipment		5-8		3,543		1,479	5-8		3,815			1,479
Machinery and equipment		5-7		68,499		68,238	5-7		76,748			68,238
				84,905		81,261
									94,151			81,261
Accumulated depreciation and amortization				44,436		41,280			(47,755	)		(41,280	)
			$	40,469	$	39,981		$	46,396		$	39,981

Balance, May 31, 2010	$	1,661		$	(1,661	)
Provision for doubtful accounts		105			(368	)
Write-offs, net of recoveries		(19	)		77
Foreign exchange valuation		7			(12	)

Balance, August 31, 2010	$	1,754
Balance, November 30, 2010				$	(1,964	)

	As of		As of		As of		As of
	August 31, 2010		May 31, 2010		November 30, 2010		May 31, 2010

Raw materials	$	2,595	$	2,564	$	2,774	$	2,564
Work in process		2,373		2,252		2,886		2,252
Finished goods		2,746		2,655		2,761		2,655
Supplies		1,268		1,265		1,760		1,265
	$	8,982	$	8,736	$	10,181	$	8,736

				Variable	Fixed											Variable	Fixed		As of
		Notional		interest	interest		As of			As of				Notional		interest	interest		November 30,		As of
Contract date	Term	Amount		rate	rate		August 31, 2010			May 31, 2010			Term	Amount		rate	rate		2010		May 31, 2010
November 20, 2006	4 years	$	8,000	LIBOR	5.17	%	$	(121	)	$	(210	)	4 years	$	8,000	LIBOR	5.17	%	$	—	$	(210	)
		$	8,000				$	(121	)	$	(210	)		$	8,000				$	—	$	(210	)

	Three months ended August 31,						Three months ended November 30,						Six months ended November 30,
	2010			2009			2010			2009			2010			2009
							(in thousands)						(in thousands)
Revenues
Services	$	55,282		$	45,702		$	76,108		$	60,938		$	131,390		$	106,640
Products and Systems		5,310			3,625			5,228			4,744			10,538			8,369
International		9,040			7,751			9,350			7,479			18,390			15,230
Corporate and eliminations		(1,222	)		(989	)		(1,849	)		(1,262	)		(3,071	)		(2,251	)
	$	68,410		$	56,089		$	88,837		$	71,899		$	157,247		$	127,988

	MISTRAS GROUP, INC.

	By:	/s/ Francis T. Joyce
		Francis T. Joyce
		Chief Financial Officer
		(Principal financial officer and duly authorized officer)

Exhibit No.		Description

10.1		~~Amendment to Employment Agreement, dated July 14, 2010 between Sotirios J. Vahaviolos and Mistras Group, Inc.~~

~~10.2~~		~~Compensation Plan~~Form of Restricted Stock Unit Certificate for ~~Non-Employee Directors (July 2010)~~awards under the 2009 Long-Term Incentive Plan.

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.